On Tuesday, Goldman Sachs (NYSE:GS) updated its outlook on Aris Water Solutions Inc (NYSE:ARIS), increasing the price target to $21.00 from the previous $18.50. The firm has maintained its Buy rating on the stock. This revision follows the company's third-quarter earnings, which surpassed estimates and prompted an upward revision in EBITDA guidance for the year. Aris Water Solutions has now set its EBITDA forecast to $208-212 million, marking a 5% increase at the midpoint.
The company reported higher-than-expected produced water volumes and continued margin strength, which contributed to the positive adjustment. Looking ahead to 2025, the management has indicated mid-single digit growth expectations for produced water handling volumes, estimating a 4-7% increase based on current projections from its largest customers.
Goldman Sachs noted improvements in capital efficiency, with a quarter-over-quarter reduction in capital expenditures. This has bolstered confidence in the company's free cash flow (FCF) outlook. The analyst anticipates that the strong FCF will lead to increased capital returns. However, it was also mentioned that the level of capital returns might be moderated by the management's focus on pursuing additional organic growth opportunities or engaging in larger mergers and acquisitions.
While specific updates on alternative uses for produced water, such as for data centers, combined cycle gas turbine (CCGT) power, mineral extraction, and desalination were not as detailed, these areas are still seen as potential long-term sources of upside.
Following the earnings report, Goldman Sachs has adjusted its EBITDA estimates for Aris Water Solutions, increasing them by 4% for the years 2024-2028, reflecting the company's robust volume performance, albeit with a slight reduction in water sales margin. The firm's positive stance on the stock remains unchanged with the elevated price target.
In other recent news, Aris Mining Corporation has announced a $450 million offering of 8% Senior Notes due 2029. The proceeds from this offering will be used for the redemption of existing 6.8% Senior Notes due in 2026 and for other corporate purposes. The company has issued a conditional notice of redemption for the 2026 Notes, contingent on the successful completion of this new offering.
Simultaneously, Aris Water Solutions has reported a 5% year-over-year increase in produced water volumes and a 17% rise in adjusted EBITDA in its second quarter of 2024. The company has raised its full-year adjusted EBITDA outlook and signed a letter of intent for an iodine extraction facility.
Collaborations with Texas Pacific and Texas Tech University are underway to explore new opportunities, including agricultural applications of produced water and additional drilling permits.
InvestingPro Insights
Aris Water Solutions Inc (NYSE:ARIS) continues to show promising financial performance, aligning with Goldman Sachs' positive outlook. According to InvestingPro data, the company's revenue growth stands at 13.51% for the last twelve months as of Q3 2024, with a robust gross profit margin of 59.58%. This strong margin performance supports Goldman Sachs' observation of continued margin strength in the company's recent earnings report.
InvestingPro Tips highlight that Aris is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of just 0.18. This suggests that the stock may be undervalued considering its growth prospects, which could justify Goldman Sachs' increased price target. Additionally, the company's impressive gross profit margins and the expectation of net income growth this year further reinforce the positive sentiment.
For investors seeking more comprehensive analysis, InvestingPro offers 8 additional tips for Aris Water Solutions, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.